It’s not that hard to select the best equity crowdfunding platforms. Crowdfunding has revolutionized the way individuals and start-ups raise capital for personal or business purposes. According to PewResearch.org, 1 in 5 Americans report having donated money to an online crowdfunding project on sites like Kickstarter or Indiegogo. Crowdfunding platforms are popular for helping individuals in need, and equity crowdfunding platforms have become a popular way for investors to gain a stake in a promising company. Here are guidelines to help investors find the best crowdfunding platform.
Not all crowdfunding platforms are created equal. The best platform for an investor may not work for the average person looking to put hands on a cool new piece of tech. What invested capital gives back is a core difference. Do investors receive equity or a product? Kickstarter, for example, is a donation-based site where a donor receives a sample or product in exchange for money. Those donations tend to be smaller, and the investor does not get a share in the company, additionally, some sites may allow the campaign to keep a percentage of donations even if a fundraiser’s goal is not met.
CircleUp is an example of an equity crowdfunding platform. Investors become direct shareholders in the companies listed on CircleUp. Some such equity crowdfunding platforms may limit opportunities to accredited investors. An investor looking for potential return on investment would be interested in equity-based platforms.
Equity crowdfunding platforms are regulated by Title III of the JOBS Act, which limits securities-based crowdfunding campaigns to $1.07 million in equity. Investments are probably larger than the $15 donation you’d see on Kickstarter. The regulation seems to limit investments to small companies and start-ups.
There are different kinds of equity-based crowdfunding sites. Some specialize in a specific industry while others focus on lifecycle stage — startup, growth, maturity, transition, or succession. That information impacts the degree of risk. An investor wanting to choose the right crowdfunding platform must research each site’s criteria. CircleUp, for example, focuses exclusively on consumer and retail companies in a high-growth stage. There is a lack of conventional capital for companies in this space; many have roughly $1M to $10M in revenue. They don’t get the same attention from venture capitalists as technology companies might enjoy and so are perfect for equity crowdfunding.
Other platforms focus on earlier stage startups or work with companies in a variety of industries. MicroVentures has both late stage and early stage investment opportunities in industries like FinTech (financial technology) and space travel. Sites like Lending Club focus on peer-to-peer debt.
Some equity crowdfunding platforms allow an average investor to enter the ring. Others, likeCircleUp, are only accessible to accredited investors. Each potential investor needs to determine their own comfort level. Is just anyone allowed to invest, or should only accredited or sophisticated investors have a share in a particular company? Are higher minimum limits, say $5000, workable? Or is a minimum of $100 more realistic? These sorts of questions fine-tune your choice of the best equity crowdfunding platforms.
Crowdfunding teams are as different as the companies they feature on their platforms. It is important that equity crowdfunding platforms employ investor-facing professionals who hold securities licenses. It’s best if they have worked with institutional or accredited investors in the past. Platform teams can include successful serial entrepreneurs with lengthy experience managing a variety of companies, or sometimes they include people with backgrounds in a specific industry. Some platforms may employ teams with experience in the finance industry or in private equity, while other platforms may employ teams with tech experience.
Background isn’t everything, but it could be relevant to what a platform offers.
Consider how the platform identifies opportunities. Is there a review process before an investment is added? Some platforms have a philosophy that any company looking for funding should be available to investors, in other words, investors decide whether to participate. Other platforms are more selective. They vet carefully and determine how appropriate a company is for their investors. A site like SeedInvest approves only 1% of applicant companies. So SeedInvest could offer opportunities more tailored to its investors than would a site that hosts more than 300 companies. Consider your needs and apply these guidelines to your search for the best equity crowdfunding platforms.
This is an updated version of an article originally published on April 22, 2013 and previously updated on July 31, 2019. It has been updated by Nora Willi]
©2022. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
Investor Executive at CircleUp.
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